If Interest rates just mean the bank are making more profit back doesn’t that mean they want them to be as high as possible? What incentivises them to reduce rates and make less money?
In: Economics
Interest rates are set by the central bank, which is an independent entity, not for profit, and also separate from the government. For example the bank of England in the UK for the British pound and the federal reserve for the dollar.
It slowly exists to ensure that the currency it issues holds it’s value and tame inflation/recessions.
‘retail’ i.e. for profit banks get their money because it is on loan from the central bank and have to pay interest to the central bank.
The interest paid is called seniorage, and gets paid to the government, but it’s pretty small fry compared to taxes, and also, the government doesn’t have control over hoq much seniorage it gets because the central bank SHOULD BE independent. The point is not to make money, but to encourage/discourage debt.
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